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R&D and Economic Growth in a Cash-in-Advance Economy

Chu, A.; Cozzi, G.

Authors

A. Chu

G. Cozzi



Abstract

R&D investment has well-known liquidity problems, with potentially important consequences. In this study, we analyze the effects of monetary policy on economic growth and social welfare in a Schumpeterian growth model with cash-in-advance (CIA) constraints on R&D investment, consumption, and manufacturing. Our main results can be summarized as follows. Under the CIA constraints on R&D and consumption (the CIA constraint on manufacturing), an increase in the nominal interest rate decreases (increases) R&D and economic growth. We also analyze the optimality of Friedman rule and find that Friedman rule can be suboptimal due to a unique feature of the Schumpeterian model.

Citation

Chu, A., & Cozzi, G. (2014). R&D and Economic Growth in a Cash-in-Advance Economy. International Economic Review, 55(2), 507-524. https://doi.org/10.1111/iere.12059

Journal Article Type Article
Online Publication Date Apr 22, 2014
Publication Date May 1, 2014
Deposit Date Jun 2, 2014
Journal International Economic Review
Print ISSN 0020-6598
Electronic ISSN 1468-2354
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 55
Issue 2
Pages 507-524
DOI https://doi.org/10.1111/iere.12059
Public URL https://durham-repository.worktribe.com/output/1460939

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